Inhibition of γ-secretase, an intramembrane protease, to reduce secretion of Amyloid-β (Aβ) peptides has been considered for treating Alzheimer's disease. However, γ-secretase inhibitors suffer from severe side effects. As an alternative, γ-secretase modulators (GSM) reduce the generation of toxic peptides by enhancing the cleavage processivity without diminishing the enzyme activity. Starting from a known γ-secretase structure without substrate but in complex with an E2012 GSM, we generated a structural model that included a bound Aβ43 peptide and studied interactions among enzyme, substrate, GSM, and lipids. Our result suggests that E2012 binding at the enzyme-substrate-membrane interface attenuates the membrane distortion by shielding the substrate-membrane interaction. The model predicts that the E2012 modulation is charge-dependent and explains the preserved hydrogen acceptor and the aromatic ring observed in many imidazole-based GSM. Predicted effects of γ-secretase mutations on E2012 modulation were confirmed experimentally. We anticipate that the study will facilitate the future development of effective GSMs.